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Momenta Pharmaceuticals, Inc. v, Bristol-Myers Squibb Co. (Fed. Cir. 2019)

By Kevin E. Noonan --

The Federal Circuit has on several occasions taken the opportunity to address (and in doing so, flesh out) the requirements for Article III standing to appeal an adverse determination in a post-grant review proceeding (post-grant review, inter partes review, and covered business method patent review) against a Petitioner (loss of patent claims typically provides sufficient injury for a Patent Owner to have standing).  See, for example, Consumer Watchdog v. Wisconsin Alumni Research Foundation; Phigenix, Inc. v. ImmunoGen, Inc.; E. I. du Pont de Nemours & Co. v. Synvina C.V.; and most recently, Amerigen Pharmaceuticals Ltd. v. UCB Pharma GmbH.  But the Court has not had a clearer factual basis for deciding that a failed Petitioner did not have standing under Article III than in Momenta Pharmaceuticals v. Bristol-Myers Squibb, decided today.

The case involved a inter partes review (IPR) brought by Momenta against all claims of U.S. Patent No. 8,476,239 having claims reciting "specific fluid formulations of the protein molecule CTLA4Ig (cytotoxic T-lymphocyte associated protein 4 immunoglobulin)."  These formulations were used to treat, inter alia, rheumatoid arthritis, having the generic name abatacept and sold by BMS as Orencia^®.  The PTAB instituted but sustained the patentability of all claims.  This appeal followed.

However, certain additional facts outside the basis for the PTAB's decision were relevant to the decision reached by the panel.  While not needing to establish standing to petition for IPR, Momenta at that time was pursuing research for the development of a biosimilar version of Orencia^®.  However, during the course of the IPR trial, Momenta's biosimilar candidate failed clinical testing and was withdrawn by Momenta from FDA review.  BMS moved to dismiss the appeal on the grounds that these actions deprived Momenta of standing, insofar as there was no prospect of injury if Momenta was not pursuing its biosimilar.  The Court heard argument on the motion as well as the merits and retired to confer.

While conferring, Momenta brought two other facts to the Court's attention.  First, on October 18, 2018 (after oral argument), Momenta filed a Letter to the Court (permitted under Fed. R. App. P. 28(j)) along with a press release, informing the Court that Momenta had "has initiated discussions with its collaboration partner, Mylan, to exit its participation in the development of its other five biosimilar programs including M834, a proposed biosimilar to ORENCIA® . . . ."  This prompted the Court to issue an Order to Show Cause (on October 23rd) why the Court should not dismiss the appeal.  Ten days later Momenta responded that:

As of today, the companies continue to be jointly responsible under that agreement for product development and for sharing the costs of that development, which are substantial.  And because of BMS's patent and the Board's decision upholding it, Momenta and its partner Mylan still face the same fork in the road about the commercial formulation for their biosimilar product—they must decide whether to proceed with the current formulation or switch to a more expensive and potentially less commercially viable option.  That decision and the costs associated with it still turn on the outcome of this appeal.

Momenta's response was supported by a declaration from its Chief Business Officer that the parties had not reached a decision whether to terminate the Orencia^® biosimilar development program.  In addition, Momenta asserted its "economic interest" in any Orencia^® biosimilar that might be developed by Mylan, which included "potential right to royalties."  A little more than a month later, on December 10th, Momenta filed another letter with the Court, informing the panel of a Preliminary Prospectus Supplement and Form 8-K filed with the Securities and Exchange Commission four days before, which notified the SEC and prospective investors that:

We have elected to terminate our collaboration agreement with Mylan with respect to the development of . . . M834, a proposed biosimilar to ORENCIA® . . . .  On November 19, 2018, we delivered a formal notice of this partial termination to Mylan, as provided in the collaboration agreement.

Momenta made no response to BMS's further argument that the appeal was mooted by these developments, nor did the company withdraw its appeal.

Judge Newman rendered the Court's decision, joined by Judges Dyk and Chen.  Calling the "constitutional limitation of federal-court jurisdiction to actual cases or controversies" the most fundamental principle defining the judiciary's proper role, citing Raines v. Byrd, 521 U.S. 811, 818 (1997), the opinion addressed Momenta's argument that the requirement for standing for judicial review of agency decisions was "relaxed" relative to district court litigation.  These requirements are that an appellant must have "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision."  Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016)).  The panel recognized that some relaxation has been recognized, for example in Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) and Massachusetts v. E.P.A., 549 U.S. 497, 517–18 (2007).  Indeed, the Supreme Court has held that "[p]arties that initiate the [Inter Partes Review] proceeding need not have a concrete stake in the outcome; indeed, they may lack constitutional standing" in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131, 2143–44 (2016).

But that relaxation does not extend to the requirement of "injury in fact," which is a hard floor of Article III jurisdiction that cannot be removed by statute, citing Summers v. Earth Island Institute, 555 U.S. 488 (2009).  The basis for this "hard floor, according to the opinion, is that without it courts would be reduced to writing advisory opinions.  Congress does not have the power to do so by statute, as recognized in Consumer Watchdog v. Wis. Alumni Research Found. and Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 100 (1979).  Under the facts as they had developed, Momenta was unable to show "'an invasion of a legally protected interest' that is 'actual or imminent, not conjectural or hypothetical'" as required under the Supreme Court's Lujan decision.

Momenta's alternative argument, that the estoppel provisions of IPR proceedings under 35 U.S.C. § 315(e), were similarly unavailing in the face of evidence that Momenta was not longer engaging in activity that could lead to infringement liability.  The argument that Momenta might be injured "at some future time" if Mylan developed an Orencia^® biosimilar from the sale of which Momenta would be entitled to royalties was too attenuated to provide injury-in-fact, the opinion citing Clapper v. Amnesty Int'l USA, 568 U.S. 398, 414 n.5 (2013), that a plaintiff "cannot rely on speculation about the unfettered choices made by independent actors" not before the court.  Momenta's position was contrary to several Federal Circuit decisions on standing for appealing PTAB decisions, including Consumer Watchdog, Phigenix, Inc. v. Immunogen, Inc., and RPX Corp. v. ChanBond LLC, No. 17–2346, ECF 39 (Fed. Cir. Jan. 17, 2018).  In cases where lacking a product on the market was not enough to preclude Article III standing, the petitioner had "concrete plans for future activity that creates a substantial risk of future infringement," JTEKT Corp. v. GKN Automotive Ltd., 898 F.3d 1217, 1220–21 (Fed. Cir. 2018), or the parties were "direct competitors and were in commercial dispute" and the petitioners faced "a significant risk of patent infringement in their demonstration plant that was entering into operation," E.I. DuPont de Nemours & Co. v. Synvina C.V., 904 F.3d 996, 1005 (Fed. Cir. 2018).  None of these facts were present here.

And while recognizing that "[s]tanding and mootness may not be coextensive in all cases," none of the exceptions ("when the issue has avoided review and is likely to be repeated, or when the defendant voluntarily ceased the challenged activity and the plaintiff seeks to preserve its win") applied here.  Accordingly, the Court dismissed the appeal as moot.

Momenta Pharmaceuticals, Inc. v, Bristol-Myers Squibb Co. (Fed. Cir. 2019)
Panel: Circuit Judges Newman, Dyk, and Chen
Opinion by Circuit Judge Newman

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A Glimmer of an Idea on an Experimental Use Exemption

By Kevin E. Noonan --

One of the most powerful, visceral arguments made by the American Civil Liberties Union in Assoc. Molecular Pathol. v. Myriad Genetics, 689 F. 3d 1303 (2013), was that permitting Myriad and the University of Utah to have patent rights to isolated human DNA inhibited basic research.  Indeed, the meme that patents can interfere with free access to the "building blocks" of science and technology can be found in Supreme Court dicta from Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127 (1948), to Myriad and Mayo Collaborative Services v. Prometheus Labs., Inc., 132 S.Ct. 1289 (2012).  Similarly, opponents of the Bayh-Dole Act (codified at 35 U.S.C. §§ 200-212), which permits universities to patent inventions made using Federal funding, base some of their arguments on the inequity visited on the public in allowing these inventions to be protected by patent and thus (at least technically) making scientific and research use an act of infringement.

These concerns were exacerbated by the Federal Circuit decision in Madey v. Duke Univ., 307 F.3d 1351 (Fed. Cir. 2002), where the Court agreed that the practice of a patented invention by Duke University researchers was not protected by an "experimental use" exemption.  In doing so, the Court recharacterized the nature of such scientific use by universities, ostensibly based on the "commercial" nature of modern university practice:

In short, regardless of whether a particular institution or entity is engaged in an endeavor for commercial gain, so long as the act is in furtherance of the alleged infringer's legitimate business and is not solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry, the act does not qualify for the very narrow and strictly limited experimental use defense.  Moreover, the profit or non-profit status of the user is not determinative.

This decision cabined the (common law) experimental use exemption to activities akin to the Victorian practice of observing with crude microscopes rotifers in a drop of pond water as an after-dinner amusement amongst gentlemen.  The Court's reasoning was set forth as follows:

Our precedent clearly does not immunize use that is in any way commercial in nature.  Similarly, our precedent does not immunize any conduct that is in keeping with the alleged infringer's legitimate business, regardless of commercial implications.  For example, major research universities, such as Duke, often sanction and fund research projects with arguably no commercial application whatsoever.  However, these projects unmistakably further the institution's legitimate business objectives, including educating and enlightening students and faculty participating in these projects.  These projects also serve, for example, to increase the status of the institution and lure lucrative research grants, students and faculty.

Regardless of the practicality of these distinctions, there the law has rested ever since, and it is generally recognized that there is no effective experimental use exemption under U.S. patent law.

There are, of course, exemptions to infringement liability in the statute; for example, 35 U.S.C. § 287(c) provides:

(1) With respect to a medical practitioner's performance of a medical activity that constitutes an infringement under section 271(a) or (b), the provisions of sections 281, 283, 284, and 285 shall not apply against the medical practitioner or against a related health care entity with respect to such medical activity.

where

"medical activity" means the performance of a medical or surgical procedure on a body, but shall not include (i) the use of a patented machine, manufacture, or composition of matter in violation of such patent, (ii) the practice of a patented use of a composition of matter in violation of such patent, or (iii) the practice of a process in violation of a biotechnology patent.

"medical practitioner" means any natural person who is licensed by a State to provide the medical activity described in subsection (c)(1) or who is acting under the direction of such person in the performance of the medical activity.

"body" shall mean a human body, organ or cadaver, or a nonhuman animal used in medical research or instruction directly relating to the treatment of humans.

And the exemption does not apply to activities directly related to "commercial development, manufacture, sale, importation, or distribution of a machine, manufacture, or composition of matter or the provision of pharmacy or clinical laboratory services (other than clinical laboratory services provided in a physician's office)," and "regulated under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, or the Clinical Laboratories Improvement Act."

Since the Madey decision there has been no traction for expanding the statutory exemption beyond the scope of § 287(c), but the Court's Madey decision itself provides a possible hint at a path forward.  In footnote 6 of the opinion, the Court states (citing footnote 3 in the District Court's opinion):

In a footnote, the district court cites to a section from the Bayh-Dole Act to support its reasoning that the government has a license to have patents practiced on its behalf when the government contributed to the funding of such patents.  Id. at 16 n. 3 (citing 35 U.S.C. § 202(c)(4) (2000)).  The relevant section is set forth below.

(c) Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following: (4) With respect to any invention in which the contractor elects rights, the Federal agency shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world․  35 U.S.C. § 202(c)(4) (2000).

The district court stated that the "funding agreements for the inventions created under the ′994 and ′103 patents[-in-suit] expressly provide that the Government retained rights in those inventions."  Id.  Thus, the district court reasoned, in light of the Bayh-Dole Act, Duke's use of the patents that has been authorized by the government does not constitute patent infringement.  Finally, the district court noted that: "[a]lthough the parties have presented conflicting evidence as to the extent to which the patented devices have been used for a purpose consented to by the Government, because [Madey] has failed to create a genuine issue of material fact as to whether [Duke] has commercially benefited or intends to do so with respect to the patents at issue, the uses that have been made to date with respect to both patents are, at this point, exempt from infringement liability."  Id.

The Bayh-Dole Act itself expressly provides limits and direction on how technology patented and licensed by universities under its provisions should behave; for example, in 35 U.S.C. § 204:

Notwithstanding any other provision of this chapter, no small business firm or nonprofit organization which receives title to any subject invention and no assignee of any such small business firm or nonprofit organization shall grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States [subject to waiver under conditions where this proscription cannot be carried out].  (Added Pub. L. 96–517, § 6(a), Dec. 12, 1980, 94 Stat. 3023.)

This suggests a possible avenue to enact at least a partial experimental use exemption for the members of society most impacted by even technical liability for infringement (i.e., university researchers, where the overwhelming amount of such technical infringement occurs).  Specifically, Congress could amend the Bayh-Dole Act to provide that licenses of university technologies contain, and the universities themselves be bound to grant, non-exclusive licenses to use patented technology to university researchers for non-commercial purposes:

Any patent subject to the provisions of this title, and any license to any such patent granted to any commercial entity, shall be subject to a non-exclusive license to practice the patented invention for non-commercial research purposes by researchers of a U.S. university, non-profit organization, or other scientific research institute.

The statute would be limited to university patents and to university or other research institutes or organizations, but it is precisely these patents and these entities purportedly most negatively affected by the present existence of technical infringement liability (and were the entities involved in Madey v. Duke).  The proposed statutory change is not intended to be a panacea, but its existence could ameliorate the angst felt by lawmakers and the judiciary (as well as policymakers and pundits) by the possible chilling effect of patenting on innovation.  Make no mistake, the evidence is scant that there has been any such chill; after all, the poster child for the effects of this behavior, the Myriad gene patents, had tens of thousands of scientific papers published from grant to invalidation by the Supreme Court and Federal Circuit (see "In Defense of Patenting").  But to the extent that this is a genuine issue, actual or potential, having a statutory shield for any possible misbehavior by patentees (and their licensees) might influence policymakers to be less mindful of the rhetoric and more cognizant of the benefits of almost forty years of technology transfer under the Bayh-Dole Act.

CDC and DOD Prepare for Zombie Apocalypse

By Donald Zuhn –-

While the U.S. Patent and Trademark Office has yet to receive any patent applications describing  inventions for dealing with a widespread rise of zombies (other than hi-tech "zombie" servers, virtual machines, processes, etc.), the Centers for Disease Control and Prevention (CDC) and U.S. Department of Defense (DOD) have taken steps to prepare for a zombie apocalypse.

The CDC website, for example, provides information on zombie preparedness.  Products listed on the page include links to a Zombie Preparedness Blog and Zombie Preparedness for Educators.  The CDC's Zombie Preparedness Blog advises that "[t]here are all kinds of emergencies out there that we can prepare for," including "a zombie apocalypse," and notes that "[y]ou may laugh now, but when it happens you'll be happy you read this, and hey, maybe you'll even learn a thing or two about how to prepare for a real emergency."  The blog provides a brief history of zombies and includes a list of items for an emergency kit.  The CDC notes that "what first began as a tongue-in-cheek campaign to engage new audiences with preparedness messages has proven to be a very effective platform," and therefore, the CDC continues "to reach and engage a wide variety of audiences on all hazards preparedness via 'zombie preparedness'."  The CDC even provides a graphic novel, entitled "Preparedness 101: Zombie Pandemic," which demonstrates the importance of being prepared before disaster (actual rather than fictional) strikes.

The CDC is not alone in preparing for a zombie apocalypse, as reported in a History Channel article (see "Are You Prepared for a Zombie Apocalypse? The U.S. Government Is").  In 2011 (coincidentally, the same year that the CDC began its zombie preparedness campaign), the DOD released a strategy to combat a potential zombie apocalypse – CONPLAN 8888-11.  The plan states that it "was not actually designed as a joke."  Of course, the rest of the plan's disclaimer explains that:

During the summers of 2009 and 2010, while training augmentees from a local training squadron about the JOPP [Joint Operation Planning Process], members of a USSTRATCOM [U.S. Strategic Command] component found out (by accident) that the hyperbole involved in writing a "zombie survival plan" actually provided a very useful and effective training tool.  Planners who attended JPME II at the Joint Combined Warfighting School also realized that training examples for plans must accommodate the political fallout that occurs if the general public mistakenly believes that a fictional training scenario is actually a real plan.  Rather than risk such an outcome by teaching our augmentees using the fictional "Tunisia" or "Nigeria" scenarios used at JCWS, we elected to use a completely-impossible scenario that could never be mistaken as a real plan.

Although the zombie apocalypse is confined to the small and big screens, both the CDC and DOD have found ways to use the extremely popular zombie genre to prepare people for real-life disasters and explore the basic concepts of plan and order development.

Cai v. Diamond Hong, Inc. (Fed. Cir. 2018)

By Joseph Herndon --

Zheng Cai DBA Tai Chi Green Tea Inc. appealed an opinion of the U.S. Patent and Trademark Office Trademark Trial and Appeal Board (TTAB) cancelling registration of his mark "WU DANG TAI CHI GREEN TEA" due to a likelihood of confusion with Diamond Hong, Inc.'s registered mark, "TAI CHI," pursuant to 15 U.S.C. § 1052(d) (2012).

The Federal Circuit affirmed the decision, and despite the two marks (shown below) looking substantially different in appearance at first glance, other factors weighed in favor of the cancellation.

Section 1052(d) provides that a trademark may be refused if it consists of or comprises a mark which so resembles a mark registered in the USPTO, or a mark or trade name previously used in the United States by another and not abandoned, as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive (15 U.S.C. § 1052(d)).

In Application of E.I. DuPont DeNemours & Co., the Court articulated thirteen factors to consider when determining likelihood of confusion (DuPont factors).  Not all of the DuPont factors are relevant to every case, and only factors of significance to the particular mark need be considered.

The thirteen factors are as follows:  (1) similarity of the marks; (2) similarity and nature of goods described in the marks' registrations; (3) similarity of established trade channels; (4) conditions of purchasing; (5) fame of the prior mark; (6) number and nature of similar marks in use on similar goods; (7) nature and extent of actual confusion; (8) length of time and conditions of concurrent use without evidence of actual confusion; (9) variety of goods on which mark is used; (10) market interface between applicant and owner of a prior mark; (11) extent to which applicant has a right to exclude others from use of its mark; (12) extent of potential confusion; and (13) any other established probative fact on effect of use.

Between the two marks, in its likelihood of confusion analysis, the TTAB considered the first three DuPont factors, treating the remainder as neutral because neither party submitted evidence related to them.

Mr. Cai argued that the TTAB improperly weighed these three DuPont factors to arrive at an incorrect conclusion regarding likelihood of confusion. A summary of the analysis of these factors is included below.

1.  Similarity of the nature of the goods

With respect to the similarity and nature of the goods, the goods covered by each mark overlap.  Mr. Cai's WU DANG TAI CHI GREEN TEA mark identifies the goods as "Green tea; Tea; Tea bags."

In turn, among many goods identified in its registration, Diamond Hong's TAI CHI mark identifies "tea."  Given this plain overlap, the TTAB's determination that the parties' goods are identical in part is supported by substantial evidence.

2.  Similarity of established trade channels

With respect to similarity of the established trade channels through which the goods reach customers, the TTAB followed case law and presumed that the identical goods move in the same channels of trade and are available to the same classes of customers for such goods—here, general consumers who consume or purchase tea.

Since the marks cover identical goods (tea), this presumption attaches.  Mr. Cai failed to produce evidence to rebut this presumption.

3.  Similarity of the marks

With regard to the similarity of the marks themselves, the TTAB must examine the similarity or dissimilarity of the marks in their entireties as to appearance, sound, connotation, and commercial impression.

The Federal Circuit noted that the proper test is not a side-by-side comparison of the marks, but instead whether the marks are sufficiently similar in terms of their commercial impression such that persons who encounter the marks would be likely to assume a connection between the parties.

Where the goods at issue are identical, the degree of similarity necessary to support a conclusion of likely confusion declines.

Here, the marks were considered similar by the Federal Circuit, when considered as a whole, because they both invoke a large yin-yang symbol and prominently display the term TAI CHI.

Specifically, the WU DANG TAI CHI GREEN TEA mark to Mr. Cai is described as follows:  the color(s) green and white is/are claimed as a feature of the mark, and the mark consists of a circle outlined in green, that divides to be half green and half white, with a single dot located at each half with the opposite color; on the top of the mark, it has words "Tai Chi Green Tea"; at the bottom of the mark, it has words "Wu Dang."  The mark is reproduced below.

Similarly, the TAI CHI mark of Diamond Hong is presented in the following terms:  the mark consists of a man engaged in a tai chi position atop a yin-yang symbol with the term "Tai Chi" below the symbol and a Chinese character on each side of the symbol.  The mark is reproduced below.

The Federal Circuit noted that color is not claimed as a feature of Diamond Hong's mark, and this further highlights the likelihood of confusion because, as the TTAB correctly identified, Diamond Hong's mark could be presented in a green-and-white color scheme like Mr. Cai's mark.

The Federal Circuit agreed with the TTAB's findings as to the DuPont factors, and found that the findings were supported by substantial evidence.  Thus, the Federal Circuit affirmed the Opinion of the U.S. Patent and Trademark Office's Trademark Trial and Appeal Board.

Despite the two marks looking quite different, the DuPont factors weighed heavily in factor of cancellation of Mr. Cai's mark since the nature of goods described in the marks' registrations were identical and the established trade channels were identical.

There were other DuPont factors that Mr. Cai could have perhaps argued, however, he encountered errors through submission of evidence, and further briefs by Mr. Cai were not considered.

Cai v. Diamond Hong, Inc. (Fed. Cir. 2018)
Panel: Chief Judge Prost and Circuit Judges Wallach and Hughes
Opinion by Circuit Judge Wallach

ABA Provides Guidance on Required Disclosure of Attorney Errors

By Josh Rich --

On April 17th, the American Bar Association provided a formal opinion regarding the requirement that attorneys disclose errors to clients.  Its opinion was based on Rule 1.4 of the Model Rules of Professional Conduct, which governs communications with clients.  The ABA concluded that attorneys have a duty to disclose material errors to clients, but no duty to disclose errors to former clients.  In this context, an error is material if a disinterested attorney would believe that the error would likely cause harm or prejudice to the client, or that the error would reasonably cause a client to consider terminating the practitioner's representation -- even if there would be no prejudice to the client.

Rule 1.4 of the Model Rules of Professional Conduct is the widely-adopted basis for the duty of disclosure to clients.  Forty-nine of the fifty states have adopted versions of the Model Rules of Professional Conduct, along with the U.S. Patent and Trademark Office and four of the five U.S. territories.[1]

The U.S. Patent and Trademark Office's version of Model Rule 1.4 reads:

(a) A practitioner shall:
    (1) Promptly inform the client of any decision or circumstance with respect to which the client's informed consent is required by the USPTO Rules of Professional Conduct;
    (2) Reasonably consult with the client about the means by which the client's objectives are to be accomplished;
    (3) Keep the client reasonably informed about the status of the matter;
    (4) Promptly comply with reasonable requests for information from the client; and
    (5) Consult with the client about any relevant limitation on the practitioner's conduct when the practitioner knows that the client expects assistance not permitted by the USPTO Rules of Professional Conduct or other law.
(b) A practitioner shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

37 C.F.R. § 11.104.  The obligation to disclose errors arises primarily out of sections (a)(1) and (a)(3), but also relies upon sections (a)(2) and (a)(4).  Specifically, a material error is the sort of information that forms an important part of the status of a case or matter and would lead the client to have to make informed decisions.  In light of those provisions, numerous states (both courts and bar associations) have found that an attorney has an obligation to disclose any errors that could cause prejudice to a client, underlie an ethics complaint, or give rise to a malpractice claim.

The ABA found that the obligation of disclosure would go further, however.  Even if there is no prejudice to the client, it concluded that there would be a duty to disclose errors that an independent, disinterested attorney would believe would cause a reasonable client to lose confidence in the erring practitioner.  Notably, no jurisdiction has yet found such an obligation of disclosure, and the issue would not come up in the context of a malpractice case.  However, it could come up in the context of an ethics complaint, and the risk of non-disclosure (or covering up) a non-prejudicial error is likely greater than the cost of disclosing it with an explanation.

In determining the scope of the obligation of disclosure, however, the ABA found a clear limit.  Namely, the obligation to disclose extends only to current clients.  Rule 1.4 describes the obligation of communication as relating to a "client," not to former clients.  As a result, if the error is not identified until after the representation ends -- and the representation has been terminated in accordance with Rule 1.16 -- there is no obligation to disclose an error.  There may be practical reasons, such as goodwill or business development, for such a disclosure, but there is no ethical obligation under this ABA opinion.

Thus, the ABA has drawn a clear division between current and former clients with regard to the disclosure of errors.  For a current client, a practitioner must disclose errors that a reasonable, disinterested practitioner would believe (a) would be reasonably likely to harm or prejudice the client or (b) would reasonably cause the client to consider terminating the representation.  For former clients, as long as the representation has been properly terminated, there is no ethical duty to disclose any errors whatsoever.

[1] California has not adopted the Model Rules, but has a provision analogous to Rule 1.4 in its rules.  Furthermore, the bar has proposed adoption of the Model Rules to the California Supreme Court.  The only territory that has not adopted the Model Rules is Puerto Rico.

House Bill Would Establish National Security Commission on Artificial Intelligence

By Aaron Gin --

On March 20, 2018, Rep. Elise Stefanik (R-NY) introduced a bill (H.R. 5356) in the United States House of Representatives in an effort to establish a new National Security Commission on Artificial Intelligence.  The Commission itself would be considered an independent establishment in the Executive Branch under 5 U.S.C. § 104.

The bill, entitled the National Security Commission Artificial Intelligence Act of 2018, directs the Commission to review advances in "artificial intelligence, related machine learning developments, and associated technologies."  Specifically, the Commission will consider how to advance such technologies so as to "comprehensively address the national security needs of the Nation, including economic risk, and any other needs of the Department of Defense or the common defense of the Nation."

Various officials, including the Secretary of Defense, the respective Chairpersons of the Committees on Armed Services of the House and Senate, as well as the ranking minority members of those Committees would be responsible for selecting the Commission's eleven appointed members.  Under the language of the bill, the Commission is tasked to provide an initial report no less than 180 days from enactment of the Act and a comprehensive report no later than one year from enactment.  The reports are to be submitted to the President and Congress and will include subject matter such as:

(A) the competitiveness of the United States in artificial intelligence, machine learning, and other associated technologies, including matters related to national security, economic security, public-private partnerships, and investments;

(B) means and methods for the United States to maintain a technological advantage in artificial intelligence, machine learning, and other associated technologies, including quantum computing and high performance computing;

(C) developments and trends in international cooperation and competitiveness, including foreign investments in artificial intelligence, machine learning, and computer science fields;

(D) means by which to foster greater emphasis and investments in basic and advanced research to stimulate private, public, academic and combined initiatives in artificial intelligence, machine learning, and other associated technologies, including quantum computing and high performance computing;

(E) workforce and education incentives to attract and recruit leading talent in artificial intelligence and machine learning, including science, technology, engineering, and math programs;

(F) risks associated with United States and foreign country advances in military employment of artificial intelligence and machine learning, including under the international law of armed conflict, international humanitarian law, and escalation dynamics;

(G) associated ethical considerations related to artificial intelligence and machine learning as it will be used for future applications;

(H) means to establish data standards and provide incentives for the sharing of open training data within related data-driven industries;

(I) development of privacy- and security-protecting measures for data in artificial intelligence, machine learning, and associated technologies; and

(J) any other matters the Commission deems relevant to the common defense of the Nation.

The bill appropriates up to $10 million from the Department of Defense budget to fund the Commissions activities.  Upon introduction, the bill was referred to the Committee on Armed Services, as well as the Committees on Education and the Workforce, Foreign Affairs, Science, Space, and Technology, and Energy and Commerce for a period of consideration and comment.

The bill defines "artificial intelligence" in very similar (and, in some cases, identical) terms as other pieces of proposed House and Senate AI legislation, namely:

(1) Any artificial system that performs tasks under varying and unpredictable circumstances without significant human oversight, or that can learn from experience and improve performance when exposed to data sets.

(2) An artificial system developed in computer software, physical hardware, or other context that solves tasks requiring human-like perception, cognition, planning, learning, communication, or physical action.

(3) An artificial system designed to think or act like a human, including cognitive architectures and neural networks.

(4) A set of techniques, including machine learning, that is designed to approximate a cognitive task.

(5) An artificial system designed to act rationally, including an intelligent software agent or embodied robot that achieves goals using perception, planning, reasoning, learning, communicating, decision making, and acting.

Recent legislative activity in this technology area of seems to suggest increasing public interest in artificial intelligence and its potential for positive and negative effects on society.  Time will tell whether H.R. 5356 -- and its national security focus -- will enjoy increased traction as the bill is considered, as compared to similar AI legislation proposed under the Secretaries of Commerce (H.R. 4625 and S. 2217) and Labor (H.R. 4829).

For additional information regarding this topic, please see:

• H.R.5356 – National Security Commission Artificial Intelligence Act of 2018
• GOP rep introduces bill to address national security risks of artificial intelligence (The Hill, March 21, 2018)
• House lawmaker pitches new AI commission to brief Trump (Washington Examiner, March 21, 2018)
• Multiple Artificial Intelligence Bills Introduced in House and Senate (Patent Docs, February 15, 2018)

In re Silver -- Texas Supreme Court Recognizes Patent Agent Privilege

By Josh Rich --

In reversing an appellate court decision that had caused concerns throughout the patent world, the Texas Supreme Court recognized that communications between patent agents and clients could be covered by the attorney-client privilege.[1]  In Patent Office proceedings and patent litigation, patent agent-client communications could already be protected; in non-patent litigation, however, it is far less clear -- and the prior Texas appellate court decision suggested such communications could be revealed in discovery.  By reversing the appellate court decision, the Texas Supreme Court should have patent agents feeling more confident that their representation of clients in patent prosecution is no different than that provided by patent attorneys . . . and their clients breathing a sigh of belief.

In this case, Mr. Silver was the named inventor on a patent application related to a stand-alone tablet designed to allow restaurant customers to order food and pay without having to interact with a waiter or waitress.  He hired a patent agent to prosecute the application before the U.S. Patent and Trademark Office, which the agent did successfully.  Mr. Silver sold the patent to Tabletop Media, LLC, who then licensed it to restaurant chains.[2]  Tabletop allegedly failed to pay him, and Mr. Silver sued Tabletop for breach of contract.  In the breach of contract case, brought by Mr. Silver in Texas state court, Tabletop sought production of communications between Mr. Silver and his patent agent.

The trial court compelled production of the communications, and the Texas Court of Appeals refused to overturn the trial court's decision in responding to Silver's petition for writ of mandamus.[3]  It did so because it understood Mr. Silver as requesting the court to establish a patent agent-client privilege separate from the attorney-client privilege, which it indicated that it was not empowered to do.[4]  One of the appellate court judges dissented from the panel opinion, understanding Mr. Silver's request not as the creation of a new privilege, but as an application of the existing attorney-client privilege to the patent agent-client relationship.[5]  Ultimately, the Texas Supreme Court unanimously agreed with the dissent.[6]

In Texas, claims of attorney-client privilege are governed by Texas Rule of Evidence 503.  Under that rule, "[a] client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made to facilitate the rendition of professional legal services to the client [between, among others] between the client or the client's representative and the client's lawyer."[7]  In that context, a "lawyer" is defined as "a person authorized, or who the client reasonably believes is authorized, to practice law in any state or nation."[8]  Thus, the key question was whether a patent agent was a person "authorized to practice law" in a state or nation.

While not controlled by Federal decisions, the Texas Supreme Court's answer to that question was informed by them.  Over five decades ago, in Sperry v. State of Florida ex rel. Florida Bar,[9] the Supreme Court had held that a patent agent's prosecution of applications before the U.S. Patent and Trademark Office did not constitute the unauthorized practice of law.  Then, in In re Queen's University at Kingston, which was decided just months before the Texas appellate court's decision, the Federal Circuit had determined as a matter of Federal common law that the attorney-client privilege included "a patent-agent privilege extending to [a client's] communications with non-attorney patent agents when those agents are acting within the agent's authorized practice of law before the Patent Office."[10]  In both cases, the Federal courts had reached the conclusion based on the belief that a patent agent's role in patent prosecution was not just law-like activity, it was the practice of law itself.

The Texas court also looked to Texas statutes and dictionary definitions for its decision, since Rule 503 does not itself define what "the practice of law" entails.  The Texas State Bar Act includes a definition of the practice of law in the context of unauthorized practice of law, but it is not necessarily coextensive with Rule 503.[11]  Similarly, both Webster's and Black's provide dictionary definitions.  The definition in Black's Law Dictionary includes "preparing papers to bring about various transactions,"[12] which is exactly what patent prosecution involves.  Both the Texas statutes and dictionaries also require that a lawyer's services be provided directly to a client, but that unquestionably occurs with patent agents within the scope of patent prosecution.

For the privilege to apply, Rule 503 also requires a lawyer to be authorized to practice by a state or nation.  The defendant argued that meant that a person had to be licensed as a lawyer by a state or nation, regardless of authorization by the U.S. Patent and Trademark Office.  Again, the Texas court considered the Sperry and Queen's University cases as persuasive authority.  But more importantly, it focused on the distinction between being "authorized" to practice law and being "licensed" to practice law.  It found the latter to be a subset of the former, not coextensive therewith.  Under U.S. Patent and Trademark Office regulations, a patent agent is authorized to practice before it even if he or she is not licensed to do so.  Accordingly, the Texas Supreme Court found that a patent agent is a "lawyer" for purposes of the application of the attorney-client privilege in relation to communications regarding patent prosecution.

While it might otherwise seem that the Texas Supreme Court's decision in In re Silver is merely one more case supporting the existence of a patent agent-client privilege,[13] it bears greater importance because it reversed a decision to the contrary.  The Texas Appellate Court's decision had raised great concerns that states, in breach of contract or other state law claim litigation, would not extend privilege to such communications.  The appellate court's decision had a chilling effect on clients' choice of practitioners:  to ensure the application of attorney-client privilege, they were opting for patent attorneys or patent agents supervised by attorneys.  Now, with that decision reversed, there is less reason for fear of revelation of communications and greater freedom to discuss patent applications directly with patent agents.  Thus, today, all precedent points to patent agent-client communications being privileged.

[1] In re Silver, Case No. 16-0682 (Tex. Feb. 23, 2018).
[2] If you've used a Ziosk tablet or Abuelo's, Chili's, or Red Robin, you may be part of Mr. Silver's damages claim.
[3] In re Silver, 500 S.W. 3d 644, 647 (Tex. App. 2016).
[4] Id. at 645.
[5] Id. at 650 (Evans, J., dissenting).
[6] For a more complete discussion of the Texas Appellate Court's decision, and other recent patent agent privilege decisions and regulations, see "Patent Office Ethics Developments: Patent Agent Privilege and Duty of Disclosure," Snippets (Winter 2017).
[7] Tex. R. Evid. 503(b)(1).
[8] Tex. R. Evid. 503(a)(3).
[9] 373 U.S. 379 (1963).
[10] 820 F.3d 1287, 1302 (Fed. Cir. 2016).  For an excellent recap of the Queen's University case, see "In re Queen's University at Kingston (Fed. Cir. 2016)".
[11] See Tex. Gov't Code § 81.101.
[12] The Court showed its respect for patent prosecutors by not only acknowledging that patent applications are legal documents, but actually constitute "one of the most difficult legal instruments to draw with accuracy."
[13] In the interim between the Texas Appellate Court's decision and the Texas Supreme Court's decision, the Patent and Trademark Office adopted patent agent privilege as a rule for Patent Trial and Appeal Board proceedings.  See "USPTO Issues Final Rule Establishing Patent Agent Privilege".

Multiple Artificial Intelligence Bills Introduced in House and Senate

By Aaron Gin --

Over the last two months, the United States legislature has introduced three new bills intended to establish a Federal Advisory Committee on the rapidly-evolving field of artificial intelligence (AI) and to analyze and report on the impact and growth of the technology.

FUTURE of AI Act

On December 12, 2017, Rep. John Delaney (D-MD) and Sen. Maria Cantwell (D-WA) introduced identical bills in the House (as H.R. 4625) and Senate (as S. 2217).  The twin bills were entitled the "Fundamentally Understanding The Usability and Realistic Evolution of Artificial Intelligence Act of 2017" -- or FUTURE of AI Act.

One aim of the bills is to better understand how AI might maximally benefit the economic prosperity and social stability of the United States.  The bills would also direct the Secretary of Commerce to establish a Federal Advisory Committee, which would be tasked with providing guidance on the development and implementation of artificial intelligence.  Among other roles, the Advisory Committee is to promote a "climate of investment and innovation," "optimize the development of [AI]," support the "unbiased development and application of [AI]," and "protect the privacy rights of individuals."

The Advisory Committee is asked to provide advice to the Secretary of Commerce with regard to several specific topics including:

(A) The competitiveness of the United States, including matters relating to the promotion of public and private sector investment and innovation into the development of artificial intelligence.

(B) Workforce, including matters relating to the potential for using artificial intelligence for rapid retraining of workers, due to the possible effect of technological displacement.

(C) Education, including matters relating to science, technology, engineering, and mathematics education to prepare the United States workforce as the needs of employers change.

(D) Ethics training and development for technologists working on artificial intelligence.

(E) Matters relating to open sharing of data and the open sharing of research on artificial intelligence.

(F) International cooperation and competitiveness, including matters relating to the competitive international landscape for artificial intelligence-related industries.

(G) Accountability and legal rights, including matters relating to the responsibility for any violations of laws by an artificial intelligence system and the compatibility of international regulations.

(H) Matters relating to machine learning bias through core cultural and societal norms.

(I) Matters relating to how artificial intelligence can serve or enhance opportunities in rural communities.

(J) Government efficiency, including matters relating to how to promote cost saving and streamline operations.

The Advisory Committee is additionally required to conduct a study on various intersections between AI and society, including analyzing the effects of AI on the economy, workforce, and competiveness of the United States.  The study also seeks to identify and eliminate bias in AI algorithms, identify potential "harmful outcomes," and contemplate the incorporation of ethical standards in AI development.  Furthermore, within 540 days of enactment of the Act, the Advisory Committee is required to provide a report based on the study to the Secretary of Commerce and Congress.

The bills direct that the Advisory Committee shall include 19 voting members appointed by the Secretary of Commerce.  Specifically, the voting members will be selected from "diverse" geographical locations within the United States and include:  five members from academia or the AI research community, six from private industry, six from civil society, and two from labor organizations.

One of the notable features of the twin House and Senate bills is the broad range of technologies being considered under the term "artificial intelligence."  The bills both define AI as:

(A) Any artificial systems that perform tasks under varying and unpredictable circumstances, without significant human oversight, or that can learn from their experience and improve their performance.  Such systems may be developed in computer software, physical hardware, or other contexts not yet contemplated.  They may solve tasks requiring humanlike perception, cognition, planning, learning, communication, or physical action.  In general, the more human-like the system within the context of its tasks, the more it can be said to use artificial intelligence.

(B) Systems that think like humans, such as cognitive architectures and neural networks.

(C) Systems that act like humans, such as systems that can pass the Turing test or other comparable test via natural language processing, knowledge representation, automated reasoning, and learning.

(D) A set of techniques, including machine learning, that seeks to approximate some cognitive task.

(E) Systems that act rationally, such as intelligent software agents and embodied robots that achieve goals via perception, planning, reasoning, learning, communicating, decision making, and acting.

H.R. 4625 and S. 2217 also contemplate "artificial general intelligence," which they define as "a notional future artificial intelligence system that exhibits apparently intelligent behavior at least as advanced as a person across the range of cognitive, emotional, and social behaviors."  Yet further, the bills consider "narrow artificial intelligence," or artificial intelligence systems that address specific applications such as playing strategic games, language translation, self-driving vehicles, and image recognition.

AI Jobs Act of 2018

On January 18, 2018, Rep. Darren Soto (D-FL) introduced H.R. 4829 entitled the "AI Jobs Act of 2018".  The bill promotes a "21st century artificial intelligence workforce," and focuses on training and retraining American workers in light of the possible effects of AI on the workforce and human worker demand.

H.R. 4829 requires the Secretary of Labor to undertake an AI study to determine its potential impacts on the workforce.  A report based on the study is to include:

(1) An outline of the specific data, and the availability of such data, necessary to properly analyze the impact and growth of artificial intelligence.

(2) Identification of industries that are projected to have the most growth in artificial intelligence use, and whether the technology will result in the enhancement of workers' capabilities or their replacement.

(3) Analysis of the expertise and education (including computer science literacy) needed to develop, operate, or work alongside artificial intelligence over the next two decades, as compared to the levels of such expertise and education among the current workforce.

(4) Analysis of which demographics (including ethnic, gender, economic, age, and regional) may experience expanded career opportunities, and which such demographics may be vulnerable to career displacement, due to artificial intelligence.

(5) Any recommendations to alleviate workforce displacement, prepare future workforce members for the artificial-intelligence economy, and any other relevant observations or recommendations within the field of artificial intelligence.

In preparing the report, the Secretary of Labor is tasked with conducting a series of public hearing or roundtables with various organizations, such as industrial stakeholders, heads of Federal agencies, local educational agencies, institutions of higher education, workforce training organizations, and National Laboratories.

While some language is common, the new House bill defines "artificial intelligence" more succinctly than the earlier twin bills.  Specifically, H.R. 4829 characterizes AI as systems that:

(A) think like humans (including cognitive architectures and neural networks);

(B) act like humans (such as passing the Turing test using natural language processing, knowledge representation, automated reasoning, and learning);

(C) think rationally (such as logic solvers, inference, and optimization);

(D) act rationally (such as intelligent software agents and embodied robots that achieve goals via perception, planning, reasoning, learning, communicating, decision-making, and acting); or

(E) automate or replicate intelligent behavior.

If enacted, the Acts and their resulting reports will undoubtedly lead to further discussion regarding artificial intelligence and provide multiple perspectives on how AI might impact society for better and, perhaps, for worse.  Additionally, as the bills target the Departments of Commerce and Labor separately, it will also be interesting to see how the different organizations read and react based on their respective AI studies.

For additional information regarding this topic, please see:

• H.R.4625 - FUTURE of Artificial Intelligence Act of 2017
• S.2217 - FUTURE of Artificial Intelligence Act of 2017
• H.R.4829 - AI JOBS Act of 2018
• "Lawmakers introduce bipartisan AI legislation," The Hill, December 12, 2017
• "Microsoft Sees Need for AI Laws, Regulations," Industry Week, January 18, 2018
• "Forget Killer Robots—Bias Is the Real AI Danger," MIT Technology Review, October 3, 2017

Season's Greetings from Patent Docs

The authors and contributors of Patent Docs wish their readers and families a Happy Holidays.  Publication of Patent Docs will resume on December 26th.

Happy Thanksgiving from Patent Docs

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  Publication of Patent Docs will resume on November 25th.

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  Publication of Patent Docs will resume on November 25th.

Views on Venue -- Take Two: Did the District of Delaware Get It Right?

By Andrew Williams --

We recently reported that Chief Judge Stark of the District of Delaware interpreted the second prong of the patent venue statute, 28 U.S.C. § 1400(b), in Bristol-Myers Squibb Company v. Mylan because the first prong was no longer applicable in view of the Supreme Court's TC Heartland LLC v. Kraft Foods Group Brands LLC case.  Specifically, Judge Stark anticipated how the Federal Circuit would now address venue in the ANDA context.  With impeccable timing, the Federal Circuit provided an answer to at least one of the questions considered by the Delaware Court:  what is a regular and established place of business?  In this post, we look to see if the conclusions and guidance found in the Bristol-Myers Squibb case were correct (or at least on the right track).

For reference, the patent venue statute reads in its entirety:

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

28 U.S.C. § 1400(b).  Because Mylan is not incorporated in Delaware, it appropriately alleged that BMS could not establish venue pursuant to the first prong after the Supreme Court's TC Heartland decision.  However, Judge Stark concluded that Mylan was unable to meet its burden in establishing that it "does not have a regular and established place of business in Delaware."  He also determined that the "acts of infringement" in the Hatch-Waxman context would be all of the acts that would constitute ordinary patent infringement related to a filed ANDA if, upon FDA approval, the generic drug product is launched into the market.  Correspondingly, he denied the motion to dismiss for improper venue without prejudice and allowed BMS to take jurisdictional discovery in advance of a renewed motion by Mylan.

Last week, in In re Cray Inc., the Federal Circuit granted a petition for a writ of mandamus and directed transfer of a case from the Eastern District of Texas to the Western District of Wisconsin.  As we explained in our previous post, the Federal Circuit concluded that the Texas District Court had abused its discretion by applying an incorrect legal standard.  But did the Delaware Court correctly interpret what a "regular and established place of business" means?

In analyzing the statute, both the Federal Circuit and the Delaware Court looked to In re Cordis, 769 F.2d 733 (Fed. Cir. 1985).  The Cordis decision held that "in determining whether a corporate defendant has a regular and established place of business in a district, the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not . . . whether it has a fixed physical presence in the sense of a formal office or store."  Judge Stark had noted that Cordis was a mandamus case, and therefore the standard used by the Federal Circuit was more deferential to the lower court.  The Federal Circuit similarly cautioned overreliance on Cordis because "the court did not, in its opinion, evaluate venue in light of the statutory language of § 1400(b).  The court simply determined that, under the facts presented, a writ was not justified."  Of course, because the Court granted Cray's writ of mandamus even in view of the heightened requirement for deference, the conclusions reached in that case are likely to apply in most other situations.

First, the Federal Circuit concluded that § 1400(b) is unique to patent law, and therefore it was required to apply its own law and not that of the regional circuit from which the case arose.  This is consistent with the conclusion in the BMS case.  Even though Judge Stark looked to Third Circuit law to see which party bears the burden of proof in a motion to dismiss for improper venue, he acknowledged that substantive questions relating to § 1400(b) are controlled by the Federal Circuit.

Next, Judge Stark had concluded that there are three elements that must be met:  there be a (i) place of business that is (ii) regular and (iii) established.  The Federal Circuit similarly parsed the second prong of the patent venue statute into three elements, but they were not identical:  "(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant."  In essence, the Federal Circuit combined the second two elements articulated by the Delaware Court, and separated the "place of business" element into one that is "physical" and one that is "of the defendant."  Of course, the question in Cray was whether two employees working in Texas was sufficient to establish venue for their employer in that district.  Nevertheless, even though there was a difference in the parsing of the statute, the Delaware Court still likely addressed all the required elements as identified by the Federal Circuit.

The Federal Circuit then explained that "the first requirement is that there 'must be a physical place in the district.'"  Importantly, the Court noted that the statute "cannot be read to refer merely to a virtual space or to electronic communications from one person to another."  This is consistent with Cordis.  Indeed, Judge Stark had similarly concluded that there needs to be "some sort of meaningful physical manifestation in the district," an inquiry which is a factually driven.

Next, the Federal Circuit pointed out that the "place" must be "regular."  As such, "sporadic activity cannot create venue."  This conclusion, according to the Court, is bolstered by the "established" limitation.  Based on the definition of this term, the place must be of sufficient permanence.  Therefore, "while a business can certainly move its location, it must for a meaningful time period be stable, established."

The Delaware Court came to a similar conclusion.  It first noted what has not sufficed in other cases to establish venue:  (1) simply doing business or being registered to do business in a district, (2) having sufficient "minimum contacts" with the district for the purposes of personal jurisdiction, (3) maintaining a website accessible within the district, and (4) shipping goods into a district, whether to an individual or for distribution by third parties.  Accordingly, it concluded that it "must determine whether a defendant has a regular and established place of business by conducting a fact-intensive inquiry focused on whether the defendant does its business in this District through a permanent and continuous presence here."  This legal framework is not too dissimilar from that articulated in Cray.

Finally, the Federal Circuit pointed out that the place of business must be "the place of the defendant."  Correspondingly, "the defendant must establish or ratify the place of business," while an employee "on his or her own" will not suffice.  The Delaware Court did not delve into such an analysis, perhaps because the actions of individual employees were not at issue in that case.  It did consider as relevant the fact that "the Mylan family includes at least 55 U.S. subsidiaries, more than 40 of which are incorporated in Delaware."  Nevertheless, the Delaware Court was likely more concerned about the relationship of the entities, and not whether the entities themselves could establish venue for the parent.  For example, the Court indicated that discovery could "include understanding the relationship among the 40 Delaware Mylan entities and" the Mylan entities involved in the present suit.

As a result, it does not appear that the Delaware Court's BMS  case is inconsistent with the Federal Circuit's Cray case.  If anything, the two Court's appeared to similarly analyze the patent-specific venue statute, even if they did not arrive at exactly the same conclusions.  However, because the Plaintiff in the Cray case could only "show that there exists within the district a physical location where an employee of the defendant carries on certain work for his employer," the issues addressed to establish venue in the two cases were or will be different.  Nevertheless, it would behoove both parties in the BMS case (and any other party to patent litigation going forward) to pay close attention to the Federal Circuit's analysis in Cray when participating in venue-related discovery or in conjunction with any renewed motion to dismiss for improper venue.

Allergan Avails Itself of Sovereign Immunity

By Kevin E. Noonan --

The 11th amendment to the Constitution reads:

The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state.

The application of this principle in patent cases has been controversial, both in litigation (see "The Wall Street Journal's Problem with the U.S. Constitution") and as a shield against inter partes review, by states and in particular state universities claiming the immunity as "arms of the state" (see Covidien LP v. University of Florida Research Foundation Inc. and Neochord, Inc. v. University of Maryland).  Nonetheless, immunity is well established as to the several States.  Last week, Allergan creatively availed itself of this immunity by assigning patents challenged in IPR proceedings to the St. Regis Mohawk Nation (SRMN), which also has the capacity to invoke the protection of sovereign immunity against suit.

The Orange Book-listed patents, Nos. 8,629,111; 8,633,162; 8,642,556; 8,648,048; 8,685,930, and 9,248,191, protect Allergan's RESTASIS^® (Cyclosporine Ophthalmic Emulsion 0.05%), used for chronic dry eye.  Allergan paid SRMN $13.75 million upon transferring these patents, which SRMN licensed to Allergan for $15 million per year until the patents expire on August 27, 2024.  The benefits to both Allergan and SRMN can be appreciated by the estimates of revenues for RESTASIS^®:

(Chart obtained here.)

Allergan is not alone in entering into such arrangements; in August SRC (Cray) Labs LLC transferred patent rights to the tribe, and "dozens and dozens of tribes" are pursuing such arrangements, according to David Pridham, chief executive of Dominion Harbor Group as quoted by Reuters (see "Tech entity has tribal patent deal similar to Allergan's").

The concept of sovereign immunity stems from British common law, banning lawsuits against the king.  Although not explicitly stated in the Amendment, the Supreme Court has interpreted 11th Amendment immunity to extend to actions of a citizen against the state in which she resides.  Hans v. Louisiana, 134 U.S. 1 (1890).  The rationale behind the immunity conferred by the Amendment is that the "States entered the federal system with their sovereignty intact," Blatchford v. Native Village of Noatak, 501 U.S. 775 (1991), and that "the sovereign immunity of the States neither derives from nor is limited by the terms of the Eleventh Amendment.  Rather, . . . the States' immunity from suit is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today," Alden v. Maine, 527 U.S. 706 (1999).  However, the immunity is not absolute.  It can be waived, and many states (as well as the federal government) have waived sovereign immunity in suits for tort and contract.  Certain U.S. Constitutional provisions trump the immunity, such as the Bankruptcy Clause and the 14th Amendment.  However, patent law does not fall within any federal law exemption, and the Supreme Court has decided expressly that States enjoy sovereign immunity against suits for patent infringement.  Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999).

The various tribes of Native Americans have also been held to enjoy sovereign immunity, albeit with certain limitations that do not apply to the States.  The immunity stems from common law rather than by statute or Act of Congress, Turner v. United States, 28 U.S. 354 (1919), and has been applied both to state action and private suit.  United States v. United States Fidelity & Guaranty Co., 309 U.S. 506 (1940); Puyallup Tribe, Inc. v. Department of Game of State of Washington, 433 U.S. 165 (1977); and Kiowa Tribe of Oklahoma v. Mfg. Technologies, Inc., 523 U.S. 751, 755 (1998).

Congress has the power to abrogate tribal sovereign immunity, under the Supreme Court's decision in United States v. Lara, 541 U.S. 193, 200 (2004), that "the Constitution grants Congress broad general powers to legislate in respect to Indian tribes, powers that we have consistently described as 'plenary and exclusive.'"  However, Congress can do so only if the intent is "clear and unambiguous" or "unequivocally expressed."  Santa Clara Pueblo v. Martinez, 436 U.S. 49 (1978); see also Michigan v. Bay Mills Indian Cmty., 134 S.Ct. 2024 (2014).

For some this development, while on its face consistent with the law, rankles.  In earlier sovereign immunity cases the inventors (usually university personnel) were obligated (inter alia, under the Bayh-Dole Act) to assign their inventions to the university and state universities were readily recognized as arms of the state for whom the immunity applied.  Here, Allergan is unabashedly obtaining the benefit of tribal sovereign immunity in a commercial transaction.  While such a transfer is well within Allergan's rights to alienate these patents as a private property right, avoidance of IPR as not only a consequence but the express intent of the transfer distinguishes this use of sovereign immunity from other instances.  (And of course it remains to be seen whether patents are exclusively a private property right or more in the nature of a government grant, see Oil States Energy Services, LLC v. Greene's Energy Group, LLC).

Recent history suggests that, at a minimum, Congress will want to hear from the parties on this arrangement.  But in light of earlier controversies like Mylan's Epi-Pen cost increase and the Martin Shkreli affair at a Turing Pharmaceuticals, as well as more general concerns about patent quality and validity and increasing drug costs, it is likely that there will be some effort in Congress to prevent maneuvers such as this one.  The courts have made it clear that any limitation on SRMN's sovereign immunity is solely within the "plenary power" of Congress.  But passage of such a measure must remain in doubt in the current political climate, given the inability of Congress to pass legislation its members seem to be much more committed to than such an esoteric question as sovereign immunity, no matter how relevant the issue may be to their constituents' access to affordable drugs.

Allergan issued a press release on the transfer.